Along with an updated IFR (Interim Final Rule) for forgiveness, the SBA also released on Friday, May 22nd an IFR covering the SBA Review Procedures and related borrower and lender responsibilities. Many borrowers have been curious as to what an SBA review or audit of their loan exceeding $2,000,000 would look like.
SBA Reviews of Individual PPP Loans
The IFR first confirms that the SBA may review ANY PPP Loan as the Administrator deems appropriate (which, per prior guidance, will include any loan over $2,000,000). Their review will include a review of the following:
1. Borrowers eligibility for the loan, including eligibility under economic uncertainty and as an eligible SBA Borrower.
2. Calculation of the loan amount and use of loan proceeds.
3. Loan forgiveness amounts (including if entitled to forgiveness).
The SBA notes that it will undertake a review at any time at the SBA’s discretion. Borrowers will note that the forgiveness application stated borrowers should retain documents for 6 years from the loan, which is further stated in this IFR. The forgiveness process per prior guidance will require a lender to give notice within 60 days of a request for loan forgiveness; after the lender gives notice to the SBA, the SBA will then pay the lender the forgiveness amount within 90 days. It is highly likely that the SBA review will take place primarily during this 90 day window; however, the SBA clearly is also stating its discretion to review after this period.
The IFR indicates that borrowers will have an opportunity to respond to any SBA questions during this review, as the SBA will require the lender to contact borrowers in writing to request additional information. The main recourse that the SBA appears to have, and will be using, will be to make any loan deemed ineligible non-forgivable, but also reserve the right for “other available remedies.” The SBA has indicated that any rulings are eligible to be appealed which will be discussed under a separate IFR.
Borrower/Lender Forgiveness Process
For each loan forgiveness application, lenders will:
1. Receive from the borrower the PPP Loan Forgiveness application, including the certifications on the application.
2. Confirm receipt of underlying documentation as required by the application.
3. Confirm borrower’s calculation, with specific attention to the dollar amounts of payroll and nonpayroll costs.
4. Confirm calculations of the borrower’s reduction calculations.
The IFR notes that the responsibility for a proper forgiveness calculation falls on the borrower and the borrower’s attestation of its accuracy. Lenders are only expected to perform a good-faith review in a reasonable time and lenders can still rely on borrowers’ representations. Only the PPP Loan Calculation Form and PPP Schedule A will be sent to the SBA.
If a lender determines that a borrower is not eligible for forgiveness, the lender must provide a reason for its denial. The SBA reserves the right to review the lender’s decision and borrowers have the right to request an SBA review within 30 days of a lender’s denial.
If the SBA is reviewing a loan, the SBA will give written notice to the lender who will in turn give written notification to the borrower. The lender will submit to the SBA upon the initial review of the loan:
1. Borrower Application Form and all supporting documentation
2. Loan Forgiveness Application and all supporting documentation
3. Lender will request that the borrower provide the Schedule A Worksheet
4. A signed and certified transcript of account
5. PPP Loan Note
6. Other documents related to the loan as requested by the SBA
Many borrowers have been curious as to what the process of an SBA review would entail, particularly those with loans above $2,000,000. The new IFR does provide some limited guidance into this process, yet many questions and open points remain. It looks like the SBA review will focus on the same documents needed for the loan application and forgiveness, so borrowers still need to focus on these documents first and foremost. It appears that any review will be done at the SBA level and may have limited borrower interaction.
Edward McWilliams, CPA
Ed is a Partner in the firm’s tax and business advisory practice focusing on providing services to middle market private companies across different industries as well as to early stage startups. Ed has over a decade of experience providing tax and business consulting services to these companies of different sizes and across different industries, bringing a broad and diverse knowledge base and strategic solutions to the many complex issues that businesses face.